Tools / Buffett indicator
Market value ÷ GDPThe Buffett indicator
Add up what the stock market says US companies are worth and divide by the size of the economy. It is a blunt, slow measure of how richly the whole market is priced.
US corporate equities as % of GDP
What it measures
The top of the ratio is the market value of equity issued by US nonfinancial companies, public and private, from the Federal Reserve's quarterly Financial Accounts (Z.1, FRED series NCBEILQ027S). The bottom is US nominal GDP from the Bureau of Economic Analysis. The Fed's figure arrives about ten weeks after each quarter ends, so for today we take the last official value, move it by how much the S&P 500 has moved since, and divide by the latest GDP. That number is an estimate and is labelled as one.
The nickname comes from a 2001 Fortune article Buffett wrote with Carol Loomis, where he discussed this ratio as a broad gauge of market valuation.
What it misses
It drifts upward for structural reasons. US companies earn more abroad than they used to, so their value can grow faster than US GDP. Lower interest rates also raise what investors will pay for the same profits, and profit margins are higher than in past decades. A reading above the long-run median does not mean a crash is coming, and the ratio has stayed high for many years at a time. It is a thermometer for the whole market, not a tool for timing or for judging one stock.